Request By:
The Honorable Hershel Mullikin
Mayor of Sardis
Sardis, Kentucky 41056
Opinion
Opinion By: Steven L. Beshear, Attorney General; By Alex W. Rose, Assistant Attorney General
In your letter of July 31, 1981, you requested the opinion of this office with regard to the following questions in connection with a sixth class city:
(1) How can the city levy an ad valorem tax? Is there a maximum tax levy? Must all property, real and personal, be taxed? Is it necessary or permissible to adopt a homestead exemption? Is it possible to tax only those houses presently benefiting from street lights? Who would collect the tax?
(2) Is it permissible to utilize revenue sharing funds for street light expenses?
(3) Are other sources of income available to the city?
Each question will be addressed separately.
HOW CAN THE CITY LEVY AN AD VALOREM TAX?
Section 181 of the Kentucky Constitution provides as follows:
"The General Assembly shall not impose taxes for the purpose of any county, city, town or other municipal corporation, but may, by general laws, confer on the proper authorities thereof, respectively, the power to assess and collect such taxes. . . ." (Emphasis added)
The General Assembly exercised the power conferred upon it in Section 181 of the Kentucky Constitution and enacted KRS 92.281(1) which provides that:
"Cities of all classes are authorized to levy and collect any and all taxes provided for in section 181 of the constitution of the commonwealth of Kentucky, and to use the revenue therefrom for such purposes as may be provided by the legislative body of the city."
The General Assembly, by enacting KRS 92.280(1), also provided the means whereby a city of the sixth class could levy an ad valorem tax. That subsection reads as follows:
"The legislative body of each city of the second to the sixth class shall provide each year, by ordinance, for the assessment of all real and personal property within the corporate limits that is subject to taxation for city purposes, and shall levy an ad valorem tax thereon for city purposes." (Emphasis added)
As provided by the General Assembly, a city of the sixth class can levy an ad valorem tax by ordinance. It need not hold a public hearing or election. However, for an ad valorem tax ordinance of a city of the sixth class to be valid, it must comply with all appropriate procedures and limitations contained in KRS Chapters 92 and 132.
IS THERE A MAXIMUM TAX LEVY?
Section 157 of the Kentucky Constitution provides, in pertinent part, as follows:
"The tax rate of cities, towns, counties, taxing districts and other municipalities, for other than school purposes, shall not, at any time, exceed the following rates upon the value of the taxable property therein, viz.: . . . for all towns or cities having less than ten thousand, seventy-five cents on the hundred dollars. . . ." (Emphasis added)
Even though Section 157 of the Kentucky Constitution provides an absolute maximum tax rate for all cities, see OAG 79-273, the General Assembly may constitutionally fix city tax rate limits below the maximum specified in the Constitution. See Ashland v. Webb, Ky., 470 S.W.2d 604 (1974). Consequently, the General Assembly, in KRS 132.027, placed additional limitations on the tax rate which can be levied by a city. Therefore, any city ad valorem tax ordinance must comply with the maximum rates as provided in KRS 132.027.
MUST ALL PROPERTY, REAL AND PERSONAL, BE TAXED?
With two notable exceptions, discussed below, a city of the sixth class has no discretion in determining what property shall be subject to ad valorem taxation. Section 170 of the Kentucky Constitution enumerates the classes of property exempt from taxation by all taxing entities within the Commonwealth. After listing the exemptions, Section 170 goes on to provide that:
". . . [A]ll laws exempting or omitting property from taxation other than the property above mentioned shall be void. . . ."
However, when a city is the taxing authority, Section 170 of the Kentucky Constitution must be read in conjunction with Section 171 which provides, in pertinent part, that:
"The General Assembly shall have power to divide property into classes and to determine what class or classes of property shall be subject to local taxation. . . ."
Pursuant to the authority given to it in Section 171 of the Kentucky Constitution, the General Assembly enacted KRS 132.200 which provides, in pertinent part, as follows:
"All property subject to taxation for state purposes shall also be subject to taxation in the county, city, school or other taxing district in which it has a taxable situs, except the classes of property described in KRS 132.030 and 132.050, and the following classes of property, which shall be subject to taxation for state purposes only. . . ."
The statute goes on to enumerate twelve classes of property which are exempt from local taxation. Consequently, these twelve classes of property along with the property described in KRS 132.030 and 132.050 and the exempt property listed in Section 170 of the Kentucky Constitution are prohibited from being taxed by local taxing authorities.
As previously mentioned, the Kentucky Constitution does provide an opportunity for local taxing authorities to exercise their discretion in providing exemptions or freezing assessment values for two types of property if the General Assembly so provides by statute. Section 170 of the Kentucky Constitution provides, in pertinent part, as follows:
". . . The general assembly may authorize any incorporated city or town to exempt manufacturing establishments from municipal taxation for a period not exceeding five years, as an inducement to their location."
In addition, the Kentucky voters, in the November 3, 1981 election, approved amendment 2 which created Section 172B of the Kentucky Constitution. See Kentucky Acts 1980, Chapter 113, Section 2. The new section reads as follows:
"Notwithstanding contrary provisions of Sections 170, 171, 172, or 174 of this Constitution, the General Assembly may provide by general law that the governing bodies of county, municipal, and urbancounty governments may declare property assessment or reassessment moratoriums for qualifying units of real property for the purpose of encouraging the repair, rehabilitation, or restoration of existing improvements thereon. Prior to the enactment of any property assessment or reassessment moratorium program, the General Assembly shall provide or direct the local governing authority to provide property qualification standards for participation in the program and a limitation on the duration of any assessment or reassessment moratorium. In no instance shall any such moratorium extend beyond five years for any particular unit of real property and improvements thereon."
The General Assembly exercised the authority given to it in Section 170 of the Kentucky Constitution and enacted KRS 92.300(1) which authorizes cities of the second to sixth classes to exempt certain manufacturing establishments from municipal taxation for a maximun of five years as an inducement to their location within the city. However, the General Assembly has not yet enacted legislation conferring upon local taxing authorities the moratorium powers authorized in Section 172B of the Kentucky Constitution.
With the exception of the property described in KRS 92.300(1), a city of the sixth class has no alternative but to assess all property located within its jurisdictional limits which is not specifically exempted from local ad valorem taxation by the constitution or by statute. A city ordinance attempting to exempt any other property will be void.
IS IT NECESSARY OR PERMISSIBLE TO ADOPT A HOMESTEAD EXEMPTION?
In the recent election of November 3, 1981, a proposed amendment to the Kentucky Constitution was approved by the voters which expanded the homestead exemption from ad valorem taxation to include property owned by qualified disabled persons and used as their personal residence. See Kentucky Acts 1980, Chapter 113, Section 1. The amended Section 170 of the Kentucky Constitution provides, in pertinent part, as follows:
"There shall be exempt from taxation . . . real property maintained as the permanent residence of the owner, who is sixty-five years of age or older, or is classified as totally disabled under a program authorized or administered by an agency of the United States government or by the railroad retirement system, provided the property owner received disability payments pursuant to such disability classification, has maintained such disability classification for the entirely of the particular taxation period, and has filed with the appropriate local assessor by December 31 of the taxation period, on forms provided therefor, a signed statement indicating continuing disability as provided herein made under penalty of perjury, up to the assessed valuation of sixty-five hundred dollars on said residence and contiguous real property. . . ."
KRS 132.810(2)(c) provides that:
"Only one (1) exemption per residential unit shall be allowed regardless of the number of residents sixty-five (65) years of age or older occupying said unit, but the $6,500 exemption shall be construed to mean $6,500 in terms of the purchasing power of the dollar in 1972. Every two (2) years thereafter, if the cost of living index of the United States department of labor has changed as much as one per cent (1%), the maximum exemption shall be adjusted accordingly." (Emphasis added)
In Lester v. Fort Thomas, Ky., 531 S.W.2d 490 (1975), the Kentucky Supreme Court ruled that the dollar value principle applied to the homestead exemption and, consequently, KRS 132.810(2)(c), created by a 1974 amendment to the statute, was constitutional. In light of the Lester decision, supra, so much of OAG 73-371 which provides that a constitutional amendment is necessary to raise the $6,500 homestead exemption, is no longer valid.
KRS 132.810 provides in subsection (3) as follows:
"Notwithstanding any statutory provisions to the contrary, the provisions of this section shall apply to the assessment and taxation of property under the homestead exemption provision for state, county, city, or special district purposes."
Section 170 of the Kentucky Constitution makes the homestead exemption from ad valorem tax mandatory for qualified property. However, because of the provisions of KRS 132.810(2)(c), the amount of the exemption is related to the Cost of Living Index of the United States Department of Labor.
It is not necessary for a legislative enactment to establish the homestead exemption. Section 170 of the Kentucky Constitution is self-executing. See OAG 72-726. However, in order to claim the exemption, the owner of the qualified property must present his qualifications to the appropriate taxing authority and comply with the procedures contained in Section 170 and KRS 132.810.
IS IT POSSIBLE TO TAX ONLY THOSE HOUSES PRESENTLY BENEFITING FROM STREET LIGHTS?
Section 171 of the Kentucky Constitution provides, in pertinent part, that:
". . . Taxes shall be levied and collected for public purposes only and shall be uniform upon all property of the same class subject to taxation within the territorial limits of the authority levying the tax; and all taxes shall be levied and collected by general laws. . . ." (Emphasis added)
The Constitution goes on to provide in Section 172 that:
"All property, not exempted from taxation by this Constitution, shall be assessed for taxation at its fair cash value. . . ."
Consequently, for city ad valorem tax purposes, all property which is not exempted by Section 170 of the Kentucky Constitution or by statute must be assessed uniformly at its fair cash value. An assessment of ad valorem tax based upon benefits received would not be valid.
However, the General Assembly, by enacting KRS 91A.200 through 91A.290, has provided for "special assessments" with regard to cities. KRS 91A.220(1) provides that:
"A city may finance the cost of an improvement in whole or in part by special assessments made as provided in KRS 91A.200 to 91A.290."
KRS 91A.220(2) goes on to provide as follows:
"Cost of an improvement shall be apportioned equitably on a fair basis."
The following definitions are found in KRS 91A.210:
"As used in KRS 91A.200 to 91A.290, unless the context otherwise requires:
(1) 'Improvement' means construction of any facility for public use or services or any addition thereto, which is of special benefit to specific properties in the area served by such facility;
(2) 'Property' means any real property benefited by an improvement;
(3) 'Special assessment' or 'assessment' means a special charge fixed on property to finance an improvement in whole or in part;
(4) 'Fair basis' means assessed value basis, front foot basis, square foot basis or benefits received basis;
* * *
(8) 'Benefits received basis' means the apportionment of cost of an improvement according to equitable determination by the city legislative body of the special benefit received by property from the improvement, including assessed value basis, front foot basis, and square foot basis, or any combination thereof, and may include consideration of assessed value of land only, graduation for different classes of property based on nature and extent of special benefits received, and other factors affecting benefits received. . . ." (Emphasis added)
As indicated by the statutes quoted above, street lights can be financed through special assessment. However, before work begins on the improvements, the city must comply with all of the requirements set out in KRS 91A.200 to 91A.290. More particularly, a comprehensive report containing all the information set out in KRS 91A.240 must be prepared by the city, a public hearing must be held with proper notice to all interested parties as provided in KRS 91A.250, and an ordinance must be passed and published pursuant to KRS 91A.260. Even after passage of the ordinance, an affected property owner may contest the ordinance as it applies to him in the circuit court of the county in which the city is located. See KRS 91A.270.
WHO WOULD COLLECT THE TAX?
KRS 92.640(1) provides, in pertinent part, that:
"The chief of police of each city of the fifth class, and the marshall of each city of the sixth class, shall on the first Monday in each month, pay to the city treasurer all taxes and other funds of the city collected by him the preceding month. . . ." (Emphasis added)
KRS 92.640(2) goes on to provide that:
"When the sheriff is designated to collect the taxes of any city of the fifth or sixth class, he shall make a settlement on or before the tenth day of each month. . . ."
As indicated by these statutes, it is the primary responsibility of the marshal of a sixth class city to collect the ad valorem tax. However, pursuant to KRS 92.640, a sixth class city may contract with the sheriff's office to have its taxes collected by that official although the sheriff is not compelled to enter into such a contract. See OAG 74-222.
IS IT PERMISSIBLE TO USE REVENUE SHARING FUNDS FOR STREET LIGHT EXPENSES?
31 USC § 1222 which required units of local government to use revenue sharing funds only for priority expenditures was repealed on October 13, 1976. The only restrictions presently placed on the use of revenue sharing funds are the "report" and "public hearing" requirements contained in 31 USC § 1241.
WHAT OTHER SOURCES OF INCOME ARE AVAILABLE TO THE CITY?
Section 181 of the Kentucky Constitution provides, in pertinent part, as follows:
"The General Assembly may, by general laws only, provide for the payment of license fees on franchises, stock used for breeding purposes, the various trades, occupations and professions, or a special or excise tax; and may, by general laws, delegate the power to counties, towns, cities and other municipal corporations, to impose and collect license fees on stock used for breeding purposes, on franchises, trades, occupations and professions. And the General Assembly may, by general laws only, authorize cities or towns of any class to provide for taxation for municipal purposes on personal property tangible and intangible based on income, licenses or franchises, in lieu of an ad valorem tax thereon. . . ." (Emphasis added)
As previously pointed out, KRS 92.281(1) confers upon cities of all classes the power to levy and collect any and all taxes provided in Section 181 of the Constitution. However, subsection (5) of KRS 92.281 limits the application of subsection (1) with respect to sixth class cities as follows:
"License fees on businesses, trades, occupations or professions may not be imposed by a city of the sixth class at a percentage rate on salaries, wages, commissions or other compensation earned by persons for work done or services performed within said city of the sixth class nor the net profits of businesses, professions, or occupations from activities conducted in said city of the sixth class."
In addition, KRS 92.300(2) restricts the application of KRS 92.281(1) to sixth class cities as follows:
"No city of the second to sixth class may impose or collect any license tax upon any bank, trust company, combined bank and trust company, or trust, banking and title insurance company organized and doing business in this state."
Therefore, concerning taxes other than ad valorem, a city of the sixth class can raise revenue by all means enumerated in Section 181 of the Constitution with regard to cities except those specifically exempted by KRS 92.281(5) and 92.300(2).